The Celtic Tiger

The Celtic Tiger

Government incentives and a move to technology and telecommunications have helped fuel the Irish economy.

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“Why Ireland Boomed” by James B. Burnham,
in
The Independent Review "text14"> (Spring 2003), Independent Institute, 100 Swan Way, Oakland,
Calif. 94621–1428.


How did Ireland’s economy become the powerful
green tiger of the 1990s? It was more than just chance but less than a
Reaganesque revolution, argues Burnham, a business professor at Duquesne
University.


The transformation was undeniably dramatic. In the
Ireland of the mid-1980s, he notes, “the unemployment rate reached 17
percent, emigration soared, [and] the government’s finances were a
shambles.” But then came more than a decade of uninterrupted economic
growth, accelerating in the late 1990s to a rate of nearly 10 percent a
year. Inflation and joblessness declined, the government enjoyed a budget
surplus, and young people who had left the country returned and found work.


There were no dramatic changes in government policy;
the long-dominant party Fianna Fáil retained its grip on power, with
only one interruption in the mid-1990s. In part, says Burn­ham, the
success depended on demographics. When jobs were not available, high
birthrates made for high unemployment and spurred emigration. But when the
economy improved, those same birthrates “provided a large potential
reservoir of young workers to support rapid, sustained growth.” Attitude was another favorable factor: The Irish welcomed foreign
investment, particularly from the United States.


Foreign and domestic investors were reassured in 1987
when the government cut planned spending, abolished some agencies, and,
with tax evasion widespread, offered amnesty to delinquent
taxpayers—thereby reaping a $750 million windfall and effectively
broadening the tax base. That set the stage for crucial “supply
side” steps in the 1990s: reductions in marginal tax rates for both
individuals and corporations.


The government-run telecommunications
system—“perhaps the worst in western Eur­ope” says
Burnham—was turned over in 1980 to what four years later became a
self-financing state enterprise, with a leading businessman in charge. By
the end of the ‘80s, Tele­com Eireann, still a state-owned
monopoly (it would not be privatized until 2000), was a recognized leader
in European telecommunications, “especially with respect to
international services and charges.”


During the 1980s the government also expanded
state-funded higher education, and reoriented it to emphasize electrical
engineering and information technology.


When technological advances in telecommunications and
computers began to eliminate distance as a cost in the movement of anything
that could be digitized, Ireland was well prepared to take advantage of the
development.


It may have been “a scared, not a visionary,
government” that took the first step, says Burn­ham, but
pragmatic decisions—and a bit of Irish luck—eventually gave
birth to the Celtic tiger.